FTA with EU derailed by tax tussle, political uncertainty

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Envoy says good progress made, but deal likely only in first half of 2015

Differences over levy of duties on spirits, automobiles and car parts and on opening up services and public procurement have derailed negotiations for the ambitious free trade agreement between India and the European Union (EU).

Further, the Lok Sabha elections in India and a change in leadership in the 28-nation bloc — both events scheduled for May — could delay the negotiations further. The EU ambassador to India, Joao Cravinho, on Friday said India and the EU would have a free trade agreement most likely in the first half of 2015. He said both sides “have come a long way and most of the issues have been addressed.”

The FTA negotiations began way back in 2007. Among other factors, the big economic churn in the euro zone and an upheaval in some member-countries have also hampered the talks.

EU has also been negotiating similar trade pacts with the US and Japan, and those seem to have gained priority over the proposed FTA with India. Cravinho said the proposed trade and investment pact with the US “will have a positive impact” on EU partners like India.

India and the EU agree that the FTA, christened broadbased trade and investment agreement (BTIA), can give a fillip to two-way trade, which now stands at around ¤78 billion.

India continues to insist on market access to the EU’s services and pharmaceutical sectors, data security status for its IT sector and liberalised visa norms for its professionals. The European Union has been seeking a large pie in India’s financial sector with wider reforms (read higher FDI limit) in insurance and pension sectors, apart from flexibility for European banks to operate in India.

Brussels has also been very focused on getting a larger market for its wines and spirits and demanded a stringent intellectual property regime. EU has been adamant on slashing import duties on cars and car parts, while India has not been very keen on encouraging imports. Instead, it’s pushing all European carmakers to set up manufacturing facilities in India.

The 28-nation block is keeping its fingers crossed on the outcome of the next Lok Sabha elections, though it has diluted its stand on an earlier boycott of BJP’s prime ministerial candidate Narendra Modi. EU officials seem to have realised that diplomacy and business will have to go hand in hand and it makes no sense to ‘take a rigid position’ vis-à-vis one party or an individual.

Reflecting this changed position, Cravinho described Modi as a “person of great prominence” and cited the judicial verdict that has given a clean chit to him in a case relating to the 2002 riots.

“He (Modi) is a person of great prominence in the political scene. Of course, we are interested in knowing his views, seeing what plans he has if he comes to power,” Cravinho said. “Our position is to respect what the judicial and political processes are. We have no issue whatsoever with the competence and capacity of the Indian judicial system,” EU ambassador Cravinho maintained.

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